LVMH (Moët Hennessy Louis Vuitton), the world’s leading luxury products group, posted a 14% gain in operating income to $1.2 billion for 2004’s first half, the company announced on Sept. 15. Net income rose 49%, to $481 million, “a significant increase,” said its report, thanks to “improved operating profitability” and sharp cuts in expenses. The Paris-based conglomerate also announced a return to profitability for its watches and jewelry group and “selective retailing” division (including duty-free shops and the upscale Sephora perfume chain).
Bernard Arnault, chairman and chief executive officer, cited the “appeal of our brands as well as the effectiveness of our strategy,” as reasons for “both an increase in our operating margin, as well as gains in market share.” Strong summer sales, a rise in tourism, planned product launches, and the “growth of core brands in high-potential markets” portend a strong second half, he said, enabling LVMH to meet its goal of “a significant increase in operating income” for the full year. Announcement of LVMH’s strong results followed those by Italian luxury jewelry- and watchmaker Bulgari, which a day earlier reported strong gains in its first-half operating profits, a 27.3% sales rise in the United States.
A highlight of LVMH’s results, said the report, is “a noteworthy recovery in operating income” of its “Watches & Jewelry” business group. The division posted an operating income gain of $2.4 million for the first half of 2004, a significant turnaround from the same period in 2003, which saw a $46 million loss. LVMH’s Watches and Jewelry division comprises TAG Heuer, Chaumet, Christian Dior Watches, Zenith, Fred, the prestigious Italian writing instruments company OMAS, and De Beers LV, a joint venture created with the world’s leading diamond group. (In March, it sold the Ebel luxury watch brand, which been losing money for three years, to the Movado Group).
“The product innovation strategy of each brand contributed to organic sales growth of 32%, well above the market average,” reported LVMH. “Operating income benefited from this increase and also from a continued reduction in costs, despite a high level of marketing investment.” Since the international watch fair in Basel, Switzerland, in April, the upscale watch brands TAG Heuer and Zenith have been marketing new watch models. Launches scheduled for 2004’s second half include Class One rings and Liens watches by Chaumet, which recently renovated its historic boutique on Place Vendôme in Paris.
Other half-year highlights for LVMH include:
* An increase in the Group’s operating margin to 18%, market share gains for all its leading brands, and reduction in administrative costs.
* A “remarkable performance” by its signature Louis Vuitton brand (marking its 150th anniversary this year) in its Fashion & Leather Goods division. It had double-digit organic sales growth (while maintaining margins in excess of 45%), with “particularly strong” sales to its clientele in Europe, Asia, and the United States.
* Strong sales (+4%) for its Wines & Spirits group, and a 7% rise in operating income for its Perfumes & Cosmetics business group “driven notably by sales in makeup and skincare at Parfums Christian Dior.”
* “Strong improvements in sales and marketing” for its selective retailing division, including a strong increase for Sephora in its operating margins both in Europe and the United States, where it “increased its dollar sales by double digits for the fourth consecutive year.”